It was about a year ago that the financial markets looked like they were in serious trouble. Interest rates were rising, and the Trump Trade War had begun. The dual effect of this was causing the global economy to slow and talk of recession was common.
The net effect was to cause the S&P index to fall from 2940 to 2360 in the last quarter of 2018, a decline of almost 20%.
Since those volatile days things have improved significantly. The US Federal Reserve and indeed most central banks around the world have stopped increasing interest rates.
The trade issue has become less aggressive and may be on hold until after the elections in the United States.
The economy has stabilized. The removal of the negative factors to economic growth allowed the financial markets to regain the lost ground and to move to new high levels.The market is certainly not cheap by historical standards.
So what can we expect from here?
In the very short term I would not be surprised to see a minor market pullback. There has not been a correction of any substance since September of last year.
Such a correction, should it occur, would in my view represent a buying opportunity. For at least the first half of the year we expect the stable interest rate/stable trade environment to continue.
The global economy should continue to improve due to the continuation of the low interest rate environment which should provide a good platform for markets to make modest gains for most of 2020.
As we get to the latter part of the year the US elections have the potential to increase volatility and may threaten the positive economic backdrop depending of course on the likely outcome.
Until then however, we should remain in a modestly positive environment and a buy the dip strategy should work well for as long as this backdrop remains.
As mentioned above, the markets are not cheap and due to this we expect that the market gains will be relatively modest.
Our bias toward dividend paying investments is well suited to a slow growth stable interest rate environment. The occasional market dips will provide the opportunity to lock up cash flow streams at good prices.
All the best for 2020!
This communication has been prepared by Alan Tchabushnig and expresses the opinions of the authors and not necessarily those of Raymond James Ltd. (RJL). Statistics, factual data and other information are from sources RJL believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. It is intended for distribution only in those jurisdictions where RJL and the author are registered. Securities-related products and services are offered through Raymond James Ltd., member - Canadian Investor Protection Fund. Insurance products and services are offered through Raymond James Financial Planning Ltd., which is not a member - Canadian Investor Protection Fund.